FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

Business Partnership and NOW Accounts

FDIC-87-19

October 19, 1987

Jules Bernard, Senior Attorney

Thank you for your letter of September 29, 1987. You ask whether a
state nonmember bank may pay interest on a "business account"
held by a partnership. I understand that you refer to an account from
which the depositor may make an unlimited number of third-party
transfers. See 12 C.F.R. § 329.1(b)(3). An
interest-bearing account of this kind is commonly called a "NOW
account.''

A partnership may hold a NOW account, but only if the partnership is
operated primarily for religious, philanthropic, charitable,
educational, political, or other similar purposes, and it is not
operated for profit. 12 U.S.C. § 1832; 12 C.F.R. § 329.1(b)(3).

As you point out, section 329.1 of the FDIC's regulations contains
the following proviso:

[N]o deposit specified in this paragraph (3) will be deemed
to be a "demand deposit" if the entire beneficial interest of the
deposit is held by a depositor identified in paragraph (2) of § 2(a)
of Pub. L. 93-100 (12 U.S.C. § 1832(a)(2)).

You suggest that when a partnership is composed of individuals, and
the partnership holds funds on deposit in a bank, the individual
partners may be regarded as the beneficial owners of the deposit, and
that the partnership might be eligible to hold a NOW account on that
basis.

The FDIC does not agree with this view. The FDIC interprets section
329.1 in the same way as the Federal Reserve Board interprets its
parallel rule:

An individual may maintain a NOW account regardless of the
purposes that the funds will serve. . . . However, other entities
organized or operated to make a profit may not maintain NOW accounts
regardless of whether they are corporations, partnerships,
associations, business trusts, or other organizations.

1 Fed. Res. Reg. Serv. ¶ 2-462.5

In the same vein, the Federal Reserve Board's staff has issued an
opinion that reads as follows:

Professionals operating on an unassociated basis are among the
class of depositors eligible to maintain NOW accounts, since it is
impracticable to distinguish between funds used in their individual and
business capacity. Professionals operating as partnerships or
corporations, however, are not eligible, since Congress intended that
NOW accounts be made available only to individuals, and funds of such
business organizations would always be used for business purposes.

Id. ¶ 2-589

The FDIC likewise believes that partnerships organized for profit
are not eligible to hold NOW
accounts.